At first glance, everyone thinks they know what a sales tax ID is. Yes, of course: A company somehow knows its way around it in terms of tax law. But what it is good for and what it looks like are no longer known to so many people. This post will answer some common questions. The term sales tax ID is the short form of the expression sales tax identification number . Other common abbreviations are Ust-IdNr. and also UID . It is the unmistakable identification of companies in the EU .
What is the VAT ID?
The sales tax identification number (USt-IdNr.) Clearly identifies every company within the European Union (EU) . This number, which every company receives in addition to its tax number , is particularly important for preparing invoices abroad .
The sales tax ID enables tax-related transactions between EU countries. It is especially indispensable for B2B business : only with the help of the VAT ID can transactions between EU countries, the so-called intra – community delivery or intra-community service, be carried out correctly.
Those who are only active within Germany do not necessarily need a sales tax identification number. In this case, it is sufficient to state the tax number on invoices or in business transactions. However, it is essential if a company has a business relationship with a company from another EU country .
Small businesses with business partners in other EU countries can have a VAT ID no. apply, but this is not mandatory.
The difference between tax number and sales tax ID
While the tax number generally appears in the income tax return and on invoices issued by an entrepreneur, the VAT ID is used to uniquely identify entrepreneurs and legal entities subject to VAT within the EU . While the tax number brings together all of a person’s tax issues, the same goes for a sales tax identification number. The tax number is made up of 11 digits and depends on the tax office number of the place of residence. The sales tax ID also consists of 11 digits , but is preceded by the country code (for Germany DE).
So:
- The tax number summarizes a person’s tax matters
- The VAT ID identifies companies that are subject to VAT and legal entities within the European Union
Difference to the VAT number
Usually the VAT number is mainly used in countries where English is spoken and means Value Added Tax Number. It is the same as our VAT number for domestic businesses and just a different name for it. In countries such as Great Britain, the VAT number also consists of at least 9 digits. But you can also find them in other European countries, such as Poland. The VAT number can look like this, for example: 123 4567 89.
Why do you need a VAT ID number?
In the European Union, the sales tax ID is used to process intra-community services and goods transactions for sales tax purposes . It represents an additional tax number for you as an entrepreneur. You always need it if you as an entrepreneur participate in the exchange of services and goods between member states within the EU . It was introduced in 2007 and initially caused some confusion. This has evaporated over the years and every entrepreneur has got used to the VAT ID.
The VAT ID no. for intra-community deliveries and services
The sales tax ID is very important for the tax authorities within the EU. You can use it to ensure that transactions in the EU internal market can also be properly taxed. If you do business as an entrepreneur with a seat within the EU, you will not get any further without a VAT ID. Apply but you have to themselves.
The sales tax ID had to be introduced after the internal borders were discontinued. This happened on 01/01/1993 when the border controls were suspended. But the point was that the sales tax could still be guaranteed. The figures on trade in the EU market should also continue to be recorded. Therefore a control procedure was introduced by the tax authorities in Europe and the sales tax ID was created. Each company can be clearly identified with this ID .
Reverse charge procedure
A delivery to another EU country is generally exempt from sales tax . However, it must be a prerequisite that
- the items are delivered to another country within the European Union and
- this delivery is made for the company in a VAT sense .
This is what is known as the country of destination principle , which shifts taxation to the recipient’s country. This is called the reverse charge procedure . In the case of other services such as services to entrepreneurs based in the European Union, when using the VAT ID, under certain conditions it is possible to relocate the place of taxation to the country within the EU that issued the VAT ID. In terms of the reverse charge procedure , the recipient of the service has to pay tax accordingly.
